Evans v. Dean Witter Reynolds, Inc.

• Decision Date: 18 August 2000
• Docket Number: No. 30843.,30843.
• Parties: Michael EVANS, as Special Administrator of the Estate of Elfreda A. Gardner, Appellant/Cross-Respondent, v. DEAN WITTER REYNOLDS, INC., A Foreign Corporation; and Warren House, Respondents/Cross-Appellants.
• Court: Nevada Supreme Court

5 P.3d 1043

116 Nev. 598

Michael EVANS, as Special Administrator of the Estate of Elfreda A. Gardner, Appellant/Cross-Respondent, v. DEAN WITTER REYNOLDS, INC., A Foreign Corporation; and Warren House, Respondents/Cross-Appellants.

No. 30843.

Supreme Court of Nevada.

August 18, 2000.

Goedert & Michaels, Reno; Terzich & Jackson, Gardnerville, for Appellant/Cross-Respondent.

Schreck Morris and Kristina Pickering, Las Vegas; Mortimer, Sourwine & Sloane, Ltd., Reno; Sullwold & Hughes, San Francisco, California, for Respondents/Cross-Appellants.

BEFORE THE COURT EN BANC.

OPINION

MAUPIN, J.

SUMMARY

The estate of Elfreda Gardner ("the Estate") obtained a favorable jury verdict against Dean Witter Reynolds, Inc. and Warren House, a stockbroker and senior vice president of Dean Witter, based upon a theory of conspiracy to commit conversion of securities.

The jury awarded compensatory damages in the amount of $2,600,000.00, jointly and severally, against Dean Witter and House, and rendered separate punitive damage awards against Dean Witter and House in the respective amounts of $6,000,000.00 and $50,000.00. The district court, however, reduced the compensatory damage award to zero by applying equitable offsets for settlement payments received by the Estate from third parties. Notwithstanding the elimination of the compensatory damage verdict through the offsets, the trial court let the punitive damage awards stand.

On appeal, the Estate makes several claims of error by the district court including: (1) improper limitation of the scope of the conversion claim; (2) improper admission into evidence of restitution made by third parties in connection with pretrial settlements that resulted in a reduced jury award; (3) improper imposition of equitable offsets against the jury award ultimately rendered; and (4) failure to award post judgment interest on the punitive damage awards.

On cross-appeal, Dean Witter and House contend that the portion of the judgment awarding punitive damages should be reversed in its entirety because: (1) there was no evidence of malice; (2) the punitive damage awards were excessive; and (3) the reduction of the compensatory damages to zero mandates that the punitive damage awards should be set aside as a matter of law. Dean Witter separately argues that proof elicited at trial was insufficient to sustain vicarious imposition of punitive damages against it.

We conclude the district court erred in admitting evidence relating to restitution by third parties and in applying post-verdict equitable offsets. Thus, we reverse that portion of the district court's judgment pertaining to compensatory damages and remand this matter for reinstatement of the compensatory damage award and the issuance of an additur. Finally, we affirm the judgment with respect to the awards of punitive damages.

FACTS

Jack Gardner, an attorney licensed in California, managed the legal, business, and personal affairs of his elderly aunt and uncle, Elfreda and Allen Gardner. These duties were performed pursuant to a personal employment agreement. Allen and Elfreda ultimately died testate leaving no children.¹

Prior to Allen's death, he established the Allen F. Gardner Trust to provide interest income to Elfreda during her lifetime and, upon her death, the trust estate was to be gifted to the Gardner heirs (Jack, his two sisters, and their heirs). Jack Gardner and Pioneer Citizens Bank were co-trustees of the trust. Allen predeceased Elfreda and, at the time of his death, the Allen F. Gardner Trust assets exceeded $8,000,000.00. Elfreda's Last Will and Testament left all of her real and personal property to Jack and his wife, Sue Gardner, except for money and securities which were bequeathed to Elfreda's nieces and nephews (the "Stiegler heirs").

After Allen's death, Elfreda lived alone. Ultimately, she became dependent upon nursing assistance for all of the activities of daily living. Although House testified that Elfreda was able to express concerns about the management of her financial affairs, one of her medical providers testified that her mental and physical condition was in a state of continued deterioration and that she ultimately became mentally incompetent and physically disabled.

On October 11, 1989, Jack Gardner removed stock certificates held in Elfreda's name from a First Interstate Bank safe deposit box, which was held jointly by Elfreda and Jack Gardner. Thereafter, Jack deposited the certificates with Dean Witter into an active asset account² for registration in Dean Witter's street name.³ Appellants allege that the value of the stock certificates at the time of the deposit exceeded $8,000,000.00. The valuation at that time was largely uncontested at trial.

Donald Brooks, manager of Dean Witter's Stateline office, testified that on October 13, 1989, he and Jack Gardner witnessed Elfreda affix her signature to all of the opening account documents. Brooks also testified that he notarized Elfreda's signatures. However, two handwriting experts testified at trial that the signatures were not those of Elfreda, and that three different inks were used to execute the documents.

One of the documents allegedly signed by Elfreda was a full trading authorization, which gave Jack Gardner authority over the account, including the power to sell corporate securities. Jack wrote approximately $1,600,000.00 in checks from the active asset account to purchase real and personal property, including "Hummel" figurines, model trains, furniture, gold coins, and real property in Douglas County, Nevada. Because Elfreda's will left her real and personal property to Jack and Sue Gardner, and because all monies and securities were bequeathed to the Stiegler heirs, these transactions substantially depleted the portion of the estate gifted in Elfreda's will to the Stiegler heirs. Most of the assets purchased with these proceeds were then held jointly in the name of Mr. and Mrs. Jack Gardner.

Jack also used the original full trading authorization to transfer United Airlines stock, the primary asset in the account, to his own accounts at Dean Witter and to those of his friends, with a total of 8,488 shares being distributed. He also distributed 3,365 of the shares to the Stiegler heirs. After Elfreda's death, Jack continued to transfer assets from Elfreda's account into his personal account. Dean Witter allowed these transfers, despite its policy of freezing accounts upon the death of a client. Further, after Elfreda's death, Dean Witter sold stock certificates from the account to pay off $903,508.52 in margin obligations incurred by Jack in connection with the active asset account in Elfreda's name. House was the account executive who serviced this account.

In addition to the active asset account, Jack opened a separate precious metal account with Dean Witter in Elfreda's name. It is uncontested that Jack forged the signatures required to open this account. House admitted notarizing the false signatures. The account was used to transfer gold coins to Jack Gardner at his California address.

After Jack Gardner's defalcations were identified, the Estate filed an action seeking damages against the Estate of Jack Gardner,⁴ Sue Gardner, Pioneer Citizens Bank, trust counsel, Dean Witter, and House. The lawsuit alleged three separate loss categories, to wit: (1) losses incurred as a result of the handling of the Allen F. Gardner Trust, of which Elfreda was the income beneficiary during her lifetime; (2) losses stemming from the conversion of assets from Elfreda's personal bank account at First Interstate Bank ("FIB"); and (3) losses sustained in connection with diversions from the Dean Witter accounts. The complaint alleged breaches of fiduciary duty, conversion before letters, conversion, embezzlement, civil conspiracy, and racketeering with regard to each separate loss category. Although the Estate's pleadings alleged that all of the defendants named in connection with all three categories of loss were jointly and severally liable, the first two loss categories did not involve Dean Witter. Claims in connection with the third category were brought against the Estate of Jack Gardner, Sue Gardner, Dean Witter, and House.

Prior to trial, Pioneer Citizens Bank and trust counsel each paid approximately $100,000.00 to settle, in part, the separate claims against the Allen F. Gardner Trust (the "Allen F. Gardner Trust Settlement").

Sue Gardner, individually and as executrix of the Estate of Jack Gardner, entered into a separate settlement agreement with the Estate of Elfreda Gardner in exchange for cash, real estate, and personal property valued by the parties in excess of $4,000,000.00 (the "Jack Gardner Settlement"). The Jack Gardner Settlement allocated net proceeds, after deductions of $400,000.00 for attorney's fees, as follows: seventy-five percent for the depletion of Elfreda's personal accounts (assets on deposit with FIB and Dean Witter); and twenty-five percent for monies Elfreda should have received from the Allen F. Gardner Trust. There was no specific breakdown in the settlement agreement allocating credit between the FIB and Dean Witter losses. Thereafter, the Estate proceeded to trial against Dean Witter and House.

Prior to trial, the district court ruled on motions in limine brought to exclude evidence of the prior settlements. The district court granted the motion in part, prohibiting admission of evidence that real and personal property was returned by virtue of a legal settlement. The district court, however, allowed Dean Witter and House to introduce evidence that personal and real property, valued at approximately $1,570,858.00, was returned, including evidence that the Hummel figurines, model trains, and furniture were returned to the estate, along with several parcels of real property. The district court also allowed Sue Gardner to testify that the value of the real property deeded back to the estate exceeded...